Search age:

Search in:

Woolworths to double house-brand sales

Eli Greenblat

British supermarkets sell three times as much house-brand goods as their Australian counterparts, while in the US, the market is double what it is here. Photo: Louise Kennerley

WOOLWORTHS boss Grant O'Brien will unveil an ambitious plan to double the supermarket group's sale of private-label products at his strategy day tomorrow, bringing it closer to supermarkets in Britain and the US where the category dominates shelves and generates premium earnings.

The initiative will form a key part of Mr O'Brien's day-long presentation to analysts and investors, during which he will also flesh out Woolworths' plans to accelerate profits in the face of renewed competition from arch rival Coles and a tough trading environment.

It is believed Mr O'Brien, who took over as chief executive of Australia's biggest supermarket group last month, aims to increase the space allocated to private-label or ''house-brand'' goods to about 35 per cent of Woolworths's sales outside of fresh food.

Neither Woolworths nor Coles reveal how much of their sales are private-label offerings, but industry expert IBISWorld estimates that in-house labels such as Woolworths ''Select'' and ''Macro'' ranges make up 23 per cent of sales in the $70 billion grocery market. This is up from 12 per cent five years ago and more than double the category's market share in the 1990s.

Advertisement

Despite its recent growth as a category, Australia still lags behind leading Western nations. British supermarkets sell three times as much house-brand goods as their Australian counterparts, while in the US the market is double what it is here.

Taking command of Woolworths' fresh assault on the packaged grocery sector will be the newly appointed director of supermarkets and petrol, Tjeerd Jegen. Mr Jegen is a veteran of British supermarket group Tesco, which has set the international benchmark for private-label penetration. Tesco's private label accounts for 45 per cent of sales.

The strategy day could also see Woolworths' discretionary retail business, the clothes and apparel business Big W, set out its plans for greater reliance on home brands. Rival Kmart, owned by Wesfarmers, has made a successful push into the private-label category.

Woolworths' refreshed private-label focus will form one of the pillars of Mr O'Brien's revamp of the supermarket business, which accounts for more than 80 per cent of profit.

At the first-quarter sales results presentation last week, Mr O'Brien said the next phase of Woolworths' growth had to be built on better earnings from the non-fresh food offering.

Because supermarkets source house brands directly from manufacturers - and much of the time also own the intellectual property and branding that sit behind the product - they deliver fatter margins than sales of standard-brand goods.

The private-label push will draw entrenched opposition from owners of branded grocery goods, who have complained about the incursion of house brands onto supermarket shelves, especially when they take away space from their products or sit alongside their items and sell at much lower prices.

In August, global food manufacturer HJ Heinz criticised the market power of Coles and Woolworths for fostering an ''inhospitable environment'' for suppliers as they stripped out brands and stocked their shelves with private-label goods.

The push might also attract the attention of Australian Competition and Consumer Commission chairman Rod Sims, who in a speech last month discussed the proliferation of private labels.

''Supermarkets sell both branded and their own private-label product,'' he said. ''This vertical integration in the supply chain needs close scrutiny to ensure the supermarkets do not misuse their market power under section 46.''

Section 46 of the Trade Practices Act deals with misuse of market power and restrictive behaviour.